P6-10 (similar to)

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Suppose a seven-year, $1,000 bond with a

9.41%

coupon rate and semiannual coupons is trading with a yield to maturity of

7.97%.

a. Is this bond currently trading at a discount, at par, or at a premuim? Explain.

b. If the yield to maturity of the bond rises to

8.49%

(APR with semiannual compounding), at what price will the bond trade?

a. Is this bond currently trading at a discount, at par, or at a premuim? Explain.

The bond is currently trading...(Select the best choice below.)

A.

... at par because the coupon rate is equal to the yield to maturity

B.

... at a premium because the yield to maturity is greater than the coupon rate.

C.

... at a premium because the coupon rate is greater than the yield to maturity

D.

... at a discount because the coupon rate is greater than the yield to maturity